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Technology Stocks : eBay - Superb Internet Business Model

EBAY 92.47

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To: Doug Fowler who wrote (3092)	5/2/1999 11:05:00 PM
From: Stewart Elliot	Read Replies (2) of 7772

>> I'm not sure why you think the Butterfield acquisition will have a significant negative impact on margins. Perhaps you can elaborate. << Butterfield's margins are undoubtedly much lower than ebay's - it wouldn't surprise me if Butterfield increases ebay's labor expense base by 50% or more and shaves several points off ebay's overall margins (where 3-5pts can be considered "significant"). I'd like to emphasize this part alot less than my main thesis which is ebay will be forced to add value (perhaps thru similar acquisitions), and/or lower prices if real competition comes into play. If the auction market becomes competitive, ebay will be forced to respond to marketing initiatives launched by other major players. >> As far there being "no free lunch in a competitive market": Microsoft's margins and profits have improved during the past several years, and .... Now, one might argue whether Microsoft is actually in a competitive market. they have been around for 20+ years now. << I've actually mentioned MS in a previous message - MS is in a class to itself. Plain and simple: MS is not in a competitive market and the barriers to entry are so enormous that no company could afford taking them on. The only valid example is one where a company is not a monopoly yet is immune to normal market pressures to add value and/or lower prices. Ebay dominates, but is not a monopoly (that could change, but clearly the market is too new to declare victory) If I paid $500 to each ebay user to switch to Amazon and never go back, how many do you think would take it? I would guess that at least 30% would take the bait (most users do not fall into your category). Now, do the same to each microsoft windows user - $500 to switch to Linux and never go back. I would guess that less than 1% would take the money - despite all the hype around linux. The example merely illustrates the difference between MS and EBAY users - one is bound, locked and really has no where to go. EBAY users can switch easily given the right incentive: for now, ebay is the only company with adequate selection, but has no monopoly. This will especially be true if another site or 2 get critical mass - for now, it's easy to say ebay has the potential to become the most powerful company in the world.

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